Dr Iftekharuzzaman: Our concern is whether the IMF loan conditions will promote public interest or not

The government of Bangladesh (GoB) is at present negotiating with the International Monetary Fund (IMF) team about possible conditionalities pegged with a $4.5 billion loan.

The IMF has so far spoken about providing autonomy to the central bank (Bangladesh Bank), reforming the tax policy and VAT policy, allowing exchange rates and interest rates to be market determined, and reducing fuel subsidies substantially, among other things.

Recently, Transparency International Bangladesh (TIB) raised a few concerns about some of the conditions the IMF could attach to the loan. 

TIB pointed out some possible "distributive injustices" they would create. Specifically, it was referring to the IMF's proposed requirements to reform subsidies on fuel, fertiliser, electricity and gas.

The Business Standard reached out to Dr Iftekharuzzaman, Executive Director of TIB, to discuss the issues in detail. 

The TIB report said many of the IMF's proposed conditions are not consistent with its policy on corruption and money laundering. Do you think they are giving Bangladesh a free pass on these issues? 

I do not want to put it exactly that way. We do not know the deals yet. Some of the things that we are hearing are coming from the media through unnamed officials. However, as of yet, we have not heard that these two particular issues, corruption and money laundering, have been raised by the IMF. 

In general, however, the IMF is a lending policy to ensure good governance. And at the same time, particular emphasis is given to prevention and control of corruption and money laundering, and financial regulations to ensure transparency.

That is why we are thinking and raising the question on whether they are being consistent with their usual policy. And we are urging them to pitch these issues and be consistent in line with their conventions. 

But obviously we do not know what conditions are being discussed behind the closed doors. Probably, in the coming days, they are going to disclose them in a press conference. And if we see that topics of good governance are not included, only then can we say that the IMF is giving Bangladesh a kind of free pass on this. 

The purpose of TIB's press release was to raise these issues, to tell them to include it and push GoB. It would be demoralising if the IMF were acting in a manner which is contradictory with its own policies, and is failing to take meaningful strategic actions to encourage good governance.

Without these measures, I do not think their loan packages will have the intended effect they are designed for. Moreover, they will have a negative effect on those who are already under extreme amounts of pressure.

TIB also said that the conditions must be planned in a way that it does not overburden general people and create discriminatory impacts on them. What conditions that are being negotiated seem to you discriminatory and should be reconsidered? 

IMF's conditions are often strict and uncomfortable for the borrower. But they are an essential component of its lending convention. The most important thing is whether the package will put the general people first or not; whether they will prioritise the public interest or not. 

In many cases, we have seen that packages go against the people and harm their interests. So, other than the good governance part, we have also raised a point on the challenges the loan agreement will pose. Our concern is whether the associated conditions with the loans are promoting public interest or not. 

One of our concerns is that the public will be overburdened. Subsidy reduction will definitely push the commodity prices even higher. As a result, inflation will be much higher for food and non-food products. 

The aftereffect of the Covid-19 pandemic and the ongoing Russo-Ukraine war has increased the price of essential commodities. Common people are struggling. Agreeing to any such conditions which could skyrocket inflation would be counter-productive.  

What about the demands forwarded by the IMF, for instance, on financial regulations. Do you think they are good for Bangladesh?

Many of the terms and conditions are logical - such as autonomy of the central bank, reform in tax policy and addressing the distressed condition (frauds and irregularities) of the banking sector. It is appreciable that they focused on these issues. We have been advocating for these for years. If the government was willing, they could have done these before.

These reforms were recommended a long time ago. But the government did not pay any heed to it. Now that the IMF is pushing, finally we might see some long-awaited changes. 

Moreover, the tax-GDP ratio should be increased. Bangladesh currently has the lowest tax-GDP ratio in the world. The IMF will probably also ask to increase tax collection, while GoB has been largely enthusiastic on VAT. 

VAT is itself a discriminatory tool of revenue collection. Everyone – irrespective of their income and wealth – has to pay the same amount of VAT. We have been trying to draw attention to this point for a long time.

To address tax evasion, one standard procedure is a common reporting standard, Bangladesh should accede to this point. To address money laundering, mis-invoicing should be stopped.

Do you think we actually need the IMF loan right now? Even the planning minister recently said it will only provide temporary relief. 

I think the loan is needed to revive our economy, albeit the relief being temporary. The obtained $4.5 billion loan would be used towards relieving some of the strain on the balance of payments. It would also provide support for the expenditures made by the government. 

Moreover, as the banking industry is experiencing challenges with LC settlement, it is quite probable that a significant portion of the loan will be used towards finding a solution to this problem. Given the scenario, seeking a loan from the IMF seems rational.